Four numbers to write before entry
Course context: This lesson belongs to a practical beginner curriculum for Pakistan.
| Input | Meaning | Example |
|---|---|---|
| Entry | Planned execution area | 1.1000 |
| Stop | Point where the trade idea is invalid | 1.0975 |
| Target | Planned profit exit | 1.1050 |
| Cash risk | Maximum planned price loss before slippage | USD 5 |
Worked 1:2 example
The stop is 25 pips and the target is 50 pips, so planned reward ÷ planned risk is 50 ÷ 25 = 2.0, usually written 1:2. If USD 5 equals 1R, the gross target is USD 10. With an approximate USD 10 pip value per standard lot, volume is 5 ÷ (25 × 10) = 0.02 lot.
Actual net reward is lower after spread, commission, swap or adverse slippage. Use the PA trading calculator for pip value, margin and estimated cost, then confirm the live spread in the platform.
Break-even rate and expectancy
Ignoring costs, the break-even win rate for a 1:2 plan is 1 ÷ (1 + 2) = 33.3%. After costs, it must be higher. A more useful measure is expectancy = win rate × average win − loss rate × average loss − average cost.
For a 45% win rate, average win of 2R, average loss of 1R and average cost of 0.1R, expectancy is 0.45×2 − 0.55×1 − 0.1 = 0.25R per trade. This is a sample calculation, not a return forecast.
Why a high ratio can mislead
| Problem | Effect |
|---|---|
| Target is rarely reached | The apparent 1:5 ratio may have a very low win rate |
| Stop is too tight | Normal spread or noise can dominate the result |
| Costs are omitted | Backtest expectancy is overstated |
| Losing trades slip | Average loss exceeds the planned 1R |
| Rules change after losses | The sample no longer tests one strategy |
Seven-day demo measurement
- Freeze one entry, stop and exit rule.
- Risk the same virtual cash amount per trade.
- Record planned R, actual R and complete cost.
- Include trades you correctly skipped.
- After at least 20 observations, calculate win rate, average win, average loss, average cost and maximum drawdown.
- Do not raise risk to compensate for a losing run.
Official calculation reference
The Exness trading calculator reports margin, previous-day average spread cost, Raw/Zero commission, long and short swap, and pip value. Actual spread is determined when the order opens.
Exness trading calculator
Questions from a first-time learner
Is 1:3 automatically better than 1:2?
No. The target hit rate, costs and average execution determine expectancy.
Does margin equal 1R?
No. Margin is reserved collateral; 1R is the cash loss defined by your strategy.
Should every trade risk the same number of lots?
No. A fixed cash risk can require different volume when stop distance or pip value changes.
Can I use the calculator result as the exact future cost?
No. Its spread cost uses the previous day’s average; the live spread can differ.